Paul Clarke looks at Directive 2007/36/EC on common requirement standards regarding the rights of shareholders in listed companies.

Introduction

Shareholders in listed companies should be able to exercise their rights throughout the entire EU. With this in mind, Directive 2007/36/EC stipulates the common requirement standards regarding the rights of shareholders in listed companies whose shares carry general meeting (GM) voting rights. With key elements coming into force on 3 August 2012, the standards were first put forward by the European Commission because the process of voting at company general meetings differs widely across the Member States and is often a complex procedure. It is further complicated when shares of a company registered in one Member State are held by people in another.

The rationale for the directive was that existing legislation at EU level failed to address such issues sufficiently. The Prospectus Directive (2001/34/EC) focuses on the information that issuers have to disclose on admission to the market, while the Transparency Obligations Directive (2004/109/EC) deals with, among other matters, information that companies are required to make available in relation to company meetings. However, neither deals with the shareholder voting process. Directive 2007/36/EC therefore lays down a framework of rules; in particular, it seeks to ensure that shareholders in companies registered in another Member State may vote without difficulty at these companies’ GMs. The directive also aims to take into account the possibilities presented by modern technologies.

Although the directive applies to all companies with their registered office in a Member State and with shares admitted to trading on a regulated market, Member States may nevertheless exempt from its remit undertakings for collective investment in transferable securities (UCITS), ie those undertakings whose sole purpose is the collective investment of capital provided by the public and co-operative societies.

Information is the key

Important information must be communicated prior to the GM of companies so that shareholders are in the best possible position to take decisions. Companies must:

  • issue the convocation no later than the 21st day before the day of the general meeting, although this can be reduced to 14 days where shareholders can vote by electronic means and the GM agrees to the shortened period

  • include essential information in the convocation (date, location of general meeting, proposed agenda, description of voting and participation procedures, etc)

  • publish on the company's website the convocation, the full text of draft resolutions and essential practical information (total number of shares and voting rights, documents intended to be submitted, or a comment against each agenda item, voting forms, if applicable).

Rights in detail

Shareholders, either individually or collectively, must be able to put forward items which will result in a revised agenda, and to submit draft resolutions. However, this right may be limited to shareholders having a minimum holding of 5% of the company's capital. When implementing the directive, Member States are required to set a single deadline by which these rights should be exercised. Shareholders may ask questions related to items on the agenda and the company is obliged to answer the questions. However, these rights are still subject to the necessary measures being taken to identify the shareholder or to ensure the good order of the general meeting. Simple means must be put in place enabling them to vote at a distance.

Any existing constraints on the eligibility of people to act as proxy holder and of excessive formal requirements for the appointment of the proxy holder must be removed by the national implementing legislation (which in the UK means The Companies (Shareholders’ Rights) Regulations 2009, of which full details are available at http://bit.ly/Lqx7Uq). Obstacles to electronic participation in the GM, including electronic voting, must also be abolished.

Last reviewed 4 July 2012